Form AP 105 Index Reference Audit Program for Contingencies and Litigation Legal Company Name Client: Balance Sheet Date: Audit Program Reviewed by: Date: Instructions: The purpose of this audit program is to assist the auditor in determining whether litigation, claims, assessments, commitments and contingencies or uncertainties exist, that may require adjustment to, or disclosure in, the financial statements, or that would affect the auditor s report. Comments should be documented in attached working papers, with appropriate references noted in the right column below. 1. Inquire of management regarding its policies for identifying, evaluating, and accounting for loss contingencies. 2. Inquire of management regarding: a. The existence of pending or threatened litigation, and asserted and unasserted claims against the company b. Violations or possible violations of laws or regulations c. Fraud involving management or employees d. Communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices e. Purchase commitments f. Circumstances that require the use of accounting estimates Performed By Workpaper Reference
Performed Workpaper g. The existence of concentrations and economic dependence h. Significant product warranties i. Anticipated losses on long-term contracts 3. Review current and previous years tax documentation for indications of settlements of disputed amounts. 4. Review the minutes of representative governing board, stockholders, and committee meetings for indications of lawsuits or other contingencies for meetings held during and subsequent to the period being audited. 5. Review legal correspondence file and examine legal invoices for indications of contingent liabilities, particularly lawsuits and pending tax assessments. 6. Examine contracts, loan agreements, leases, and correspondence from government agencies to gain insight regarding the entity s current status and future prospects of potential loss contingencies. 7. Obtain representation letters from the client s major attorneys regarding the status of pending litigation or other contingent liabilities, and evaluate their responses. The request for the attorneys letters should be signed by the client and mailed and controlled by the auditor, with the response going directly to the auditor. (See Sample Letter 3) 8. Gather information concerning guarantees, if any, from bank confirmations obtained in the audit procedures for cash. 9. Inquire of management about the existence of or potential for environmental remediation liabilities, including the following: a. Whether the entity is aware of any hazardous wastes on its site
b. Whether the entity is required to have a permit to transport, treat, store, or dispose of any hazardous wastes Performed Workpaper c. Whether the entity generates any hazardous wastes or regulated substances in its business d. Whether the entity ever used landfills, underground storage tanks, or barrels to dispose of hazardous wastes e. Whether the entity has been designated a potentially responsible party f. Whether the entity is involved in any civil or criminal investigations involving environmental issues g. Whether any regulatory authorities have issued any reports on any property the entity is associated with. (If yes, obtain copies of such reports and consider the impact of the findings on the entity s financial statements.) h. Whether the entity is aware of any requirements to clean up sites of any property purchased, sold, closed, or abandoned during the period under audit i. Whether the entity has policies and procedures in place to help identify environmental liabilities 10. Perform the following procedures to determine whether significant estimates and assumptions and concentrations have been properly identified: a. Inquire of management if all circumstances that give rise to accounting estimates have been identified by the entity. b. Identify those assertions implied in the financial statements that may require an accounting estimate. c. Review subsequent events and transactions occurring between the balance-sheet date and the date of fieldwork to test the reasonableness of accounting estimates as of the balance-sheet date (see AP 100).
Performed Workpaper d. Inquire of management about the existence of concentrations, including: (1) Concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor, or contributor. (2) Concentrations in revenue from particular products, services, or fund-raising events. (3) Concentrations in the available sources of supply of materials, labor, or services. (4) Concentrations in the market or geographic area. (5) Concentrations of labor subject to collective bargaining agreements. (6) Concentrations of operations outside the entity s home country. e. Summarize in the working papers information about significant estimates and concentrations for disclosure in the notes to the financial statements. 11. Confirm with outside parties the details of agreements underlying unconditional purchase obligations. 12. Obtain representations from management, ordinarily in writing, that the entity has disclosed all matters, including unasserted claims and assessments that their lawyer has advised them are probable of assertion (Management Representation Letter). (See Sample Letter 2) 13. If the client has not consulted a lawyer during the period under audit, include the following item in the Management Representation Letter: We are not aware of any pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the financial statements and we have not consulted a lawyer concerning litigation, claims, or assessments.
Conclusions: Comments: